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Cognitive Irreversibility and Economic Value

Call me “fascinated” by my own comment from a previous post,

The successful conclusion of an economic transaction represents a difficult-to-reversecognitive commitment by the participants to a balance of trade-offs, or economic utility.

My fascination lies with what seems to me to be a pervasive phenomenon in human affairs which I call cognitive irreversibility, which is a perception by a human agent that a willful physical action of theirs is to some degree irreversible.  From an economics perspective, I am exploring that cognitive irreversibility may be a necessary condition for economic value to emerge.  This is not a simple re-hash of Hernando de Soto’s imperative of property rights.  Rather I suspect that irreversibility may be something of an imperative, an entropy imperative, for a great deal of human cognitive behavior including:

  • compression in cognitive concept-building
  • time reduction as a complexity management strategy
  • the emergence of the concept of property
  • marginal utility in economics
  • the attraction of tyrannical leadership (irreversible surrender to authority)
  • rape, murder and war (the imposition of irreversibility)
  • tattooing and body piercing (here is where it becomes explicit)
  • transsexualism as a mechanism to manage “out of control” empathy

I am not suggesting that humans always explicitly seek “irreversibility” in decision-making, but that a lot of human behavior (especially that which we consider “economic activity”) can be modeled using one-way motivational operators, that is modeled in terms of what appears to be either explicit entropy-seeking or entropy-seeking gone wrong (cognitive failure).  I am also not suggesting that human activity can be mathematically modeled using thermodynamics.  Rather, similar to what the early information theorists did, I am borrowing the concept of “entropy” for its superficial relationship to irreversibility (Shannon seemed to be attracted to the idea of information variety).

I’ll post more later as I develop the idea further, but in the mean time consider the cognitive phenomenon of “boat burning”, or “Crossing the Rubicon”, or point of no return,

http://en.wikipedia.org/wiki/Point_of_no_return


Update: given a physically rigorous definition of entropy, I may want to reconsider borrowing the term as an analogy for “irreversibility”,

http://entropysite.oxy.edu/

Entropy change is the measure of how more widely a specific quantity of molecular energy is dispersed in a process, whether isothermal gas expansion, gas or liquid mixing, reversible heating and phase change or chemical reactions, as shown by the Gibbs free energy equation/T .”

While models such as Gibbs free energy for chemistry loosely associate irreversibility with entropy, the association is not necessary and may even be misleading.  The association, for instance, may lead one to assume that equations of thermodynamics may somehow be applicable to economics.  As Claude Shannon was aware, this is not necessarily so.

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2 thoughts on “Cognitive Irreversibility and Economic Value

  1. There is a cluster of semantic difficulties, but the one that I think matters most is the meaning of decision. By the common meaning of “decide” (see Merriam-Webster for example, http://www.merriam-webster.com/dictionary/decide) a decision has consequences and therefore is irreversible in at least its most immediate consequences. If you are merely flipping back and forth among the pages of a menu, for example, that is reversible, but you would also commonly be said to have not yet decided. Therefore, if there is such a thing as a reversible decision, one must ask, what is the definition of “decision” that is being employed? (That is, if you are “not suggesting that humans always explicitly seek ‘irreversibility’ in decision-making,” then what is the nature of this “deciding” that is potentially reversible, and how is it distinguished from the “indecision” of flipping back and forth?)

    The semantic difficulties of “reverse” are closely related. A wide range of economic transactions can be unwound, but the costs involved are substantial, so unwinding does not get you back to where you were before, which would be the root meaning of “reverse.” Unwinding a transaction may, however, take you back generally toward where you were before, and “reverse” commonly means that too. A transaction is more easily reversed before it is final, while everything is still out on the counter, but in common usage, that would be happening before it is decided, therefore, before it is transacted.

    At the risk of repeating something obvious, utility results from irreversibility. When you buy something, for example, you need a final transaction (so that, at least, the seller no longer has any recourse to cancel it) before you can take possession of the item and gain its utility. Therefore, if people are seeking utility in an economic marketplace, then by nature they are also seeking irreversibility.

    • Great points, Rick. “Irreversibility” may turn out to be nothing more than an interesting way to categorize certain kinds of cognitive behavior in human beings. If it turns out to be useful in that respect, perhaps that would be nice. If not, then it was an interesting diversion for a short while.

      There are some parameters to play with,

      • Degree of irreversibility (your question about the meaning of reversibility)
      • Irreversibility seeking versus irreversibility avoiding
      • Expectation versus experience
      • Failure to recognize irreversibility (obsessive-compulsive disorder?)
      • Failure to recognize reversibility (gambler’s fallacy?)

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